A commercial project in Hong Kong’s West Kowloon area drew just a single bid at a tender held by the local cultural authority, with blue-chip builder Sun Hung Kai Properties making an offer of an undisclosed amount.
A representative for SHKP told Mingtiandi on Tuesday that the developer controlled by the Kwok family had submitted the sole bid for the Artist Square Towers project at the time of the tender’s closing on Monday, confirming local media reports.
The 40 hectare (98.8 acre) AST site is planned for three towers spanning 699,654 square feet (65,000 square metres) of office and retail space, according to tender documents. Despite the long-term potential of such projects overseen by the West Kowloon Cultural District Authority, the recent surge in interest rates and construction costs is leading most developers and investors to freeze their decision-making process, said Hannah Jeong, head of valuation and advisory services at Colliers in Hong Kong.
“WKCD is a long-term leasehold project for which you are purely relying on rental income and no capital investment appreciation,” Jeong told Mingtiandi. “The interest rate for commercial assets already exceeds 4 percent (project financing can even cost up to 6 percent), which means your rental yield is no longer attractive.”
Weak Response to Site
The AST tender marked the second attempt by the WKCD Authority to market the site amid a local property market downturn, having made the same project available last November. The earlier tender was cancelled this year without a successful bid, likely due to developers having submitted bids lower than the reserve price, according to analysts who spoke with Mingtiandi.
Tenders for the city’s commercial sites have underwhelmed this year, including Chinachem’s acquisition of a Lantau Island project at a rate below most analyst projections. With land sale revenues in retreat, Big Four accounting firm Deloitte estimates that Hong Kong’s budget deficit for fiscal 2022-23 could reach HK$170 billion, according to documents seen by Mingtiandi.
When the latest AST tender was announced in September, Vincent Cheung, managing director at Vincorn Consulting and Appraisal, had predicted that the project could draw up to four bids reaching as high as HK$2.45 billion ($310 million).
The site, located adjacent to Kowloon MTR station, is in an area known as Artist Square and sits close to arts and cultural facilities, including M+, Asia’s first museum of contemporary, global visual culture, and the Hong Kong Palace Museum. It is also less than a 1 kilometre (0.62 mile) walk to the 11 hectare Art Park in front of Victoria Harbour.
Upon completion, AST will link directly to the MTR Corporation-developed Elements shopping mall in Kowloon, according to Jeong. The entire project is to encompass 672,044 square feet of office space, with a further 26,909 square feet reserved for retail.
Kings of West Kowloon
Should the WKCD Authority announce SHKP as the winning bidder for AST, the company will hold 47-year rights to develop and operate the site under a build-operate-transfer model, which means it would have to transfer ownership of the project back to the government once the lease expires.
In August of last year, SHKP won approval from Hong Kong’s Town Planning Board for the construction of two towers atop West Kowloon station, clearing a key hurdle in the developer’s quest to build an estimated HK$70 billion project on the city’s largest-ever commercial site.
After a couple of design revisions that saw Sun Hung Kai adjust the number and height of the proposed buildings, the board approved two towers of 122 and 148 metres (400 and 486 feet) on the 643,000 square foot (59,735 square metre) site above the high-speed rail terminus.
SHKP’s other West Kowloon projects include the 108-storey International Commerce Centre and the Imperial Cullinan and Cullinan West residential complexes.